The following factors mainly explain how the net profit of the year was achieved:

1. Group total revenues, including gold metal value, were SAR 1,999.6 million in 2022, an increase of 1.4% compared to SAR 1,971.5 million in the last year. It is worth noting that the Group does not make profits or losses from sales of gold as a metal.

2. Group operating revenues, which better represent revenues of the Group after excluding gold metal value, amounted to SAR 518.7 million for current year, an increase of 2.7% compared to SAR 505.3 million in the last year.

In KSA, wholesale operating revenues were 10.4% higher than the last year due to strong sales of L’azurde gold in traditional gold souks.

In Egypt, wholesale operating revenues grew by 18.6% in Egyptian Pound (EGP) terms, 1.0% after translation to SAR, compared to the last year. The company managed to increase its sales in both volume and value in Egypt, and successfully managed to compensate the effects of lower exchange rate of the EGP against SAR.

In Egypt, retail operating revenues grew by 25.3% in EGP terms, 2.8% after translation to SAR, compared to last year. This growth was attributable to the growth of revenues in same shops, the opening of new outlets in last twelve months, the fast growing L’azurde e-commerce platform and the increase in selling prices to offset the lower exchange rate of EGP against SAR.

Group e-commerce business delivered SAR 33.3 million revenues in 2022 (2021: SAR 24.3 million), an increase of 37%. Group e-commerce revenues represent a solid promising share of 6.4% of total Group operating revenues and 14.7% of Group Retail revenues in 2022 (2021: represented 4.8% of Group operating revenues and 10.8% of Group Retail revenues).

3. Group gross profit of SAR 327.0 million for the year 2022 was 6.3% higher than the last year of SAR 307.7 million due to higher operating revenues and improvement in gross margin percentage. The Gross margin % significantly improved to 63.0% in current year compared to 60.9% in the last year. This reflects the Group’s ability to defend and grow its profitability margins while growing its revenues as well and despite EGP devaluation.

4. Group operating profit of SAR 85.6 million for current year of 2022 was 5% higher compared to Group operating profit of SAR 81.5 million in the last year.

5. Group finance costs in the current year of 2022 were SAR 32.0 million, an increase of 2.4% from SAR 31.2 million of finance costs in the last year despite increase in global interest rates.

6. Net profit for the year of 2022 amounted to SAR 34.2 million compared to net profit of SAR 22.0 million in the last year, an increase of 55.0%, mainly due to higher revenues and higher gross profit.

7. The Comprehensive loss attributable to shareholders of the Company for the current year amounted to SAR 49.0 million compared to Comprehensive income of SAR 19.6 million in the last year, due to unrealized translation of foreign exchange loss on investment in Egypt. It is worth noting that investments in Egypt mostly represent factories and other assets for the purpose of production and generating revenues and not for the purpose of investment. The decline in the value of these investments, as a result of the depreciation of the Egyptian Pound, does not affect their ability to produce and generate revenues. Accordingly, this amount is a temporary and unrealized decline.

8. Basic Earnings per Share (“EPS”) based on profit attributable to shareholders of the Company was SAR 0.59 in the current year of 2022 compared to SAR 0.44 in the last year an increase of 35%.

9. Total Shareholders’ Equity at 31 December 2022 was SAR 389.4 million compared to SAR 454.2 million at 31 December 2021, a decrease of 14.3%, due to payment of dividends, and a negative movement in the Currency Translation Reserve due to unrealized foreign exchange loss on investment in Egypt, as stated above.

In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion section of our report, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2022, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards that are endorsed in the Kingdom of Saudi Arabia, and other standards and pronouncements issued by the Saudi Organization for Chartered and Professional Accountants (“SOCPA”).

Basis for Qualified Opinion

We noted during our audit that selling and marketing expenses in the consolidated statement of profit and loss for the year ended 31 December 2022 include gold calibration costs of SAR 37,212,886 (31 December 2021: SAR 30,677,129). Gold calibration costs represent costs incurred to refine low carat gold collected from customers as settlement of their gold receivables. In our view, gold calibration costs are production related costs and therefore should be capitalized as part of the cost of inventory, and expensed in profit or loss when the inventory is sold. We were unable to determine the necessary adjustments to the cost of revenue and closing inventory on the consolidated financial statement for the current year and prior year, respectively.

Gold calibration charges result from lower gold purity in physical gold collected from customers, as settlement of their accounts receivable balances denominated in gold. The Group records this charge as part of the accounts receivable collection department expenses in the selling and collection expenses, in line with the Group’s and industry’s practice, as this expense is incurred at the time of settlement of accounts receivable and due to the Group’s commercial policy of accepting lower gold purity from customers to avoid any delay in the collection, any impact of gold price fluctuation, higher credit risk, increase in working capital and the associated financing cost. Accordingly, this charge results from a commercial decision of accepting lower purity gold from customers, and this decision can be changed at any time by the Company depending on market circumstances and has no connection to the cost of production.

The Company has adhered to the classification of gold calibration expenses in selling and collection expenses that it has applied historically since its inception and is the normal practice in our sector. We believe that this is a more conservative and correct approach. The historical approach involves recognizing these expenses in the period in which they are incurred. The auditor's suggested approach of capitalizing these expenses to inventory would have the effect of artificially inflating net income in the current year and prior years.

General Comments:

The Company successfully pursued in 2022 its turnaround plan and delivered robust results consistently quarter after quarter. Looking ahead, the Company will continue the major innovations undertaken over the last two years and introduce new upcoming growth drivers. We continuously search and identify innovations and new initiatives to grow our topline, improve our gross margin and operate with a lower working capital. We offered in 2022 a diversified portfolio of brands including L’azurde, TOUS, Miss L’ and Waves while we consolidate our offering to adapt and win in times of changing consumers shopping behaviors. We are also mitigating the short-term downsides of the recent EGP devaluation by increasing our sales prices in EGP, and by launching new products offering great consumer value and strong margins.

The strategic drivers for the future success of the Company consist of:

1. Expanding the fast-growing Miss L’ fashion jewelry line to its full potential through our own retail points of sales, e-commerce and 3rd party retailers.

2. Growing our successful L’azurde retail business through new points of sales and a stronger assortment. Especially in KSA, we have a great opportunity to increase the current network of L’azurde retail to a much larger and profitable network. The Company has been successful in finding very promising new retail locations where stores will be opened in the near future.

3. Optimizing the traditional wholesale business selling jewelry by weight through pricing, more profitable products mix, lower working capital and costs reduction.

4. Leveraging our solid customers’ network in the traditional gold jewelry market to expand more product lines and collections, driving more revenues and profits.

5. Scaling our fast-growing e-commerce business through more investments in technology, infrastructure, systems and a state-of-the-art experienced digital organization.

6. Expanding the TOUS global franchise business in KSA through e-commerce, stronger assortment and more investments in marketing.

7. Growing our cash position while continuing to generate positive cash flows and reinforcing our solid banking relationships to support Company’s transformation.

For more information, we would like to draw the attention of the shareholders that the Condensed Consolidated Financial Statements for the year ended 31 December 2022 will be available on Company’s website (http://www.lazurde.com) under investors’ relations section.